For-profit colleges draw attention from regulators and millions of students

By Elaine Korry and Liz Willen
Monday, June 14, 2010

SACRAMENTO -- A year ago, Joseph Carrillo Jr. had to fight to get into crowded classes here at the public American River College. He couldn't find a guidance counselor, and he felt lost. So he switched to the private University of Phoenix. There, everything fell into place -- at 17 times the cost.

Carrillo's move from the community college to the for-profit university shows the allure of a higher-education sector that is growing so fast the federal government wants to rein it in. The 24-year-old, who hopes to own a business someday, said he was impressed by the ease of course scheduling at his new school and unconcerned about future debt.

"What good is cheap tuition if classes are so packed you can't even get in?" he asked.

But Congress and the Obama administration are concerned.

For-profit schools may be offering an educational alternative, but that choice often comes with crushing student debt, some observers say.

New federal rules, expected to be formally proposed in coming days, would tighten oversight of the industry. One much-debated proposal would cut federal aid to for-profit schools in certain cases if graduates spend more than 8 percent of their starting salaries to repay loans. Sen. Tom Harkin (D-Iowa) also plans this month to begin hearings on the industry, examining recruiting practices and student loan default rates.

Supporters of the schools say the proposed rules could shut down hundreds of programs, undermining President Obama's goal of making the nation the world leader in college completion by 2020.

"It will have a horrendous effect on programs in California and nationally," said Harris N. Miller, president of the Career College Association, which represents more than 1,400 for-profit schools. The association, which wields some clout in Congress, is mobilizing to fight the proposal.

Nationwide, enrollment in for-profit colleges soared from 673,000 in 2000 to 1.8 million in 2008. The growth has been fueled in California and some other states by discounts and incentives the schools offer to help students apply credits earned online toward community college degrees.

For-profit schools such as the University of Phoenix, DeVry University and Kaplan University (owned by Kaplan, a subsidiary of The Washington Post) offer professional, vocational and technical training and serve a large number of minority, low-income and first-generation college students. But they face federal scrutiny and lawsuits for burying some students under mountains of debt.

Federal aid to for-profit colleges jumped to $26.5 billion in 2009, from $4.6 billion in 2000. Two-thirds of for-profit students receive federal Pell grants, which target low-income students and don't have to be repaid. Even so, more than half of bachelor-degree recipients in 2007 at for-profit schools fell into a "high debt" range of at least $30,000 in loans, a recent College Board study found.

"These schools lay it all out for students with Pell grants and student loans," said Stan Jones, president of a nonprofit organization called Complete College America. Students, he said, "don't feel like they are paying for anything, but it's really just like a credit card for higher education."

For-profit colleges rely more on federal aid than many other higher-education institutions. The aid helps offset tuition at for-profit schools, which averaged $14,174 in 2009, according to the College Board. The average for two-year state schools was $2,544.

California is in the vanguard of a movement toward cooperation between overstretched community colleges and for-profit schools. Its community college system, with nearly 3 million students, has the nation's lowest tuition: $26 per credit. Carrillo's credits at an outlet of the University of Phoenix near here cost $450 apiece. But community colleges in this state are so crowded that officials don't discourage students from attending for-profit schools or enrolling in their online courses to satisfy degree requirements.

For-profit enrollment surged more than 20 percent in California last year, while the state's 112 cash-strapped community colleges were reducing course offerings, canceling summer school and turning away up to half of applicants. An estimated 8,800 students, including Carrillo, transferred from the state's two-year schools to the University of Phoenix.

While the Obama administration seeks to increase oversight of for-profit schools, it acknowledges their significant role. Education Secretary Arne Duncan last month urged the sector "to get rid of bad actors." But Duncan added: "Among the for-profits, phenomenal players are out there making a huge difference in helping people take the next step in the economic ladder."

Korry is a freelance writer based in the San Francisco Bay area. Willen is associate editor of the Hechinger Report, the nonprofit, nonpartisan education news outlet that produced this article. It is affiliated with the Hechinger Institute on Education and the Media, based at Teachers College, Columbia University.

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